Transmission of Financial Crises and Contagion:
A Latent Factor Approach
Mardi Dungey, Renee A. Fry, Brenda Gonzalez-Hermosillo, and Vance L. Martin
Reviews and Awards
"Examining the role of contagion during financial crisis is an important and difficult task. This book provides a coherent framework for identification, estimation and testing for the presence of contagion. The importance of the framework is illustrated by a number of applications to many recent finiancial crises. I highly recommend it for students, practitioners and scholars interested in linkages between asset markets."--Carlo A. Favero, Professor of Financial Econometrics, Bocconi University
"Policymakers, observers and academics are still struggling to grasp how developments in one particular country (the United States) and one specific, rather narrow market segment (the subprime mortgage market) could turn in 2007-09 into the worst global financial meltdown since the Great Depression. The book makes an important contribution to our understanding of the underlying transmission mechanism that has turned so many individual, isolated events over the past decades into systemic crises. It does so by developing a powerful and elegant conceptual framework, and by illustrating how this framework helps trace the contagious spread of crises. The book could not be more timely and stresses the need for policy cooperation at the global level, and for policymakers to better take into account the rising global interconnectedness when taking decisions."--Marcel Fratzscher, Head of International Policy Analysis Division, European Central Bank
"Despite the large and growing research on financial crises and spillovers, there was much confusion about empirical modeling and testing of links across financial markets. Not anymore. This book presents a new coherent framework for testing and quantifying contagion. At the core of this new framework is the use of latent factor techniques. I highly recommend reading chapter 2 for interpreting, in a new light, previous results in the literature as well as new extensions to deal with structural breaks and endogeneity issues. The case studies throughout the book are very helpful in illustrating the techniques. This is a great book. In the midst of the Subprime-Euro-Greek crisis, this book is a must read."--Graciela L. Kaminsky, Professor of Economics and International Affairs, George Washington University